U.S. investors are still waiting for their first bitcoin exchange-traded fund, but their counterparts up north have had nearly two months of access to bitcoin in an ETF wrapper.
That’s about how long the Purpose Bitcoin ETF (BTCC) and Evolve’s Bitcoin ETF (EBIT) have been on the market. Both funds are listed in Toronto, along with the newer CI Galaxy Bitcoin ETF (BTCX), which launched on March 5.
By any measure, these funds have been a success, but in typical ETF fashion, the first fund to market has soaked up the lion’s share of investor dollars. Purpose’s BTCC, which debuted on Feb. 18, recently crossed CAD$1.39 billion in assets under management, equivalent to nearly USD$1.1 billion U.S.
That compares to AUM of CAD$113 million for Evolve’s EBIT—which launched only a day after BTCC—and CAD $96 million for CI Galaxy’s BTCX.
With an 87% market share in Canada’s nascent bitcoin ETF space, Purpose is sitting pretty. I spoke to Vlad Tasevski, chief operating officer and head of product for Purpose Investments, about the success of the fund.
Unsurprisingly, he’s ecstatic about the ETF’s rapid ascent and its ability to grow to such a large size without a hitch.
“BTCC is now Canada’s fastest-growing ETF ever, reaching assets of CAD$1 billion [USD$800 million] in just a month,” he said.
That raises the question, Who’s buying the ETF—Canadians, Americans, or both?
Some have looked at the sizable discount that has shown up in the Grayscale Bitcoin Trust (GBTC) and speculated that U.S. investors may be switching over from the quasi-closed-end fund to the Canadian ETFs, which are better able to maintain their market prices close to their net asset values.
But according to Purpose’s Tasevski, there probably hasn’t been a mass movement of U.S. investors into BTCC. Though he cautioned it’s hard to get precise data on who is buying a given ETF, it’s his belief that most of BTCC’s investors are Canadians.
In fact, he thinks the ETF’s assets would be much higher—perhaps double or more—if it wasn’t so onerous for U.S. investors to buy the Canada-listed fund.
It’s also why he doesn’t think a potential U.S.-listed bitcoin ETFs, if one came to fruition, is a threat. Such a fund would cater to a completely different investor base than the Canadian products.
Being the first mover is one of the most powerful competitive advantages an ETF can have. It’s why BTCC was able to take in 87% of all Canadian bitcoin ETF assets despite one of its competitors following only a day behind.
It’s also why its rivals have had to slash their fees so aggressively to compete. EBIT, which came to market second, has an annual management fee of 0.75%, while BTCX, which came third, has a fee of 0.4%. Both are lower than BTCC, which charges 1%.
I asked Tasevski whether he sees these rival ETFs, with their lower fees, as a threat. He doesn’t.
For one reason, “Investors should consider the all-in cost of an ETF, including trading costs,” he said. “Being the largest bitcoin ETF in Canada gives a leg up to BTCC. It’s vastly more liquid than competing funds, reducing trading costs for investors.”
He also noted that the headline “management fee” doesn’t capture all of the expenses of running a bitcoin ETF, which could add up to a significant sum and be passed on to investors.
According to Tasevski, BTCC’s management expense ratio (MER)—the sum of the 1% management fee, fund operating expenses, and taxes—won’t ever exceed 1.5%.
The other ETFs don’t give that promise, he says. They could have lower management fees, but have higher a higher overall MER.
Operating expenses for bitcoin ETFs are relatively steep compared to other exchange-traded funds, but Tasevski believes they will scale down well as BTCC gets bigger, and it’s likely the fund’s expense ratio could go down in the future.
Coinbase Not A Threat
I wrapped up my conversation with Tasevski by asking him about another source of competition—crypto-focused digital platforms, like Coinbase, that allow investors to buy and sell bitcoin directly.
His response? They’re not really competition right now. In his eyes, it’s about one thing: convenience. Tasevski argued that while Coinbase and others have simplified access to the cryptomarkets, it is still much easier for many investors to access the space through their traditional brokerage accounts.
Judging by the cool billion that have flowed into his ETF in just a handful of weeks, investors seem to agree.
Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2